VOX / TECHNOLOGY / FOOD
Report on Business: Globe Investor Column
EnWave technology a potential game changer
4 December 2009
Sometimes you get lucky with acronyms. EnWave Corp., developer of the “radiant energy vacuum,” certainly did with REV.
But it’s got a lot more than a catchy nickname. It has a potentially game-changing technology that will create a lot of wealth and value if successful.
The story starts with food – drying it more precisely.
For decades, people have been using freeze dryers to do it, which involves, as the name implies, lowering the temperature and sublimating the moisture out of food.
It works fine, but the radiant energy vacuum appears to work much better. Developed by food scientist Dr. Tim Durance while at the University of British Columbia (EnWave is basically a spinoff of the school), REV technology uses microwaves and a vacuum to do what a freezer does.
But it does it far more cheaply, in terms of both equipment and operating expenses, and with better results.
EnWave says capital costs are about a sixth of freeze drying while energy costs are about a third. It’s far faster and, because it’s continuous rather than done in huge batches à la freeze drying, it’s more convenient and cheaper still.
The food is comparable in nutritional value and taste and in some cases looks better, the company says.
To test those claims, I found an ideal source: a customer. EnWave sold its first nutraREV machine to a B.C. company earlier this year, privately held Cal-San Enterprises, a blueberry grower and wine maker. They confirm what EnWave says.
Cal-San has been tinkering with various drying technologies for a decade. It chose EnWave’s because it found that the capital and operating costs were substantially lower. The science and the UBC pedigree also helped in terms of credibility.
What’s more interesting is that the product is better; the berries look more like fresh or frozen ones than dried.
Cal-San, which has territorial exclusivity agreements with EnWave, told me that this is opening up big opportunities. Food companies, from bakeries to snack food and cereal makers, are clamouring for product. And given the improvements over freeze dried, they should fetch a premium on top of having lower costs.
Cal-San wouldn’t say what returns it might earn on this investment other than to describe them as “healthy.” It is planning on buying another machine in the new year to ramp up production.
This is obviously promising for EnWave and its shareholders. First, it’s a validation of the technology. Second, it’s a lead order and they usually make subsequent ones easier. Finally, EnWave has an interesting strategy for earning revenue. It charges for the machines, but also wants to earn a small royalty on the sale of products the machines make.
EnWave’s technologies go beyond food though. They’re also being tested and developed for vaccines, probiotics, enzymes and other things. There are encouraging test results and impressive alliances with respect to these businesses. EnWave, for example, is testing the use of its technology on bacterial cultures and probiotics with global food giant Danisco.
I interrogated co-CEO John McNicol for this column, and he held up well. He’s focused, to the point, and has an impressive track record of creating value.
As for numbers, the market for freeze-drying equipment is $1.8-billion (U.S.). Carving out a piece of that should produce profits.
The real juice is in the royalties. The company says the addressable market of applicable products (dried foods, antibodies, vaccines etc.) will be $120-billion in about a decade using current growth rates. (I couldn’t verify those numbers, but can say that the market is huge.) Getting just 2 per cent of that market and earning a 2-per-cent royalty on it would yield income of almost $50-million – and keep in mind there are no costs against that income other than taxes and royalties payable to UBC. On top of that there are manufacturing profits. If things keep going as they have, though, EnWave will likely be bought before then.
There are the usual small-cap risks to the story of course, but on the positive side EnWave isn’t reinventing the wheel; demand for what it wants to sell exists already and, for what it’s worth, I’d say the rewards do seem to compensate for the risks.
Looking out to 2018, there are several potentially lucrative markets for EnWave. The two scenarios below estimate how much the company could potentially earn.
Addressable Size in U.S. $
Total About $120
Scenario A Scenario B
Assumed penetration rate 2% 5%
Assumed royalty 2% 5%
Gross royalties $48M $300M